Armadillo
Mfg. Co. has a target capital structure of 50% debt and 50% equity.
They are planning to invest in a project which will necessitate raising
new capital. New debt will be issued at a before-tax yield of 12%, with a
coupon rate of 10%. The equity will be provided by internally generated
funds. No new outside equity will be issued. If the required rate of
return on the firm’s stock is 15% and its marginal tax rate is 40%,
compute the firm’s cost of capital.
a. 13.5%
b. 12.5%
c. 7.2%
d. 0 11.1%
a. 13.5%
b. 12.5%
c. 7.2%
d. 0 11.1%
No comments:
Post a Comment
Note: only a member of this blog may post a comment.